By Jason Thibodeau
If you’ve been following financial news or scrolling through social media, you’ve probably heard about the Federal Reserve’s recent decision to cut short-term interest rates by 50 basis points (0.5%). By now, you might be tired of the endless headlines and noise surrounding this move. It’s the kind of story that gets blasted everywhere, often leaving people more confused than informed. I can’t blame you if you’re tempted to tune it all out—I highly recommend it, actually!
But here’s the deal: I’ve been in the mortgage industry for over 20 years, and I promise to give you a clear, sales-free breakdown of what’s really going on. The most important thing you need to understand? The Federal Funds Rate is not the same thing as mortgage rates.
What is the Federal Funds Rate?
Let’s clear up one common misconception right away: the Federal Reserve’s decision to cut interest rates does not directly affect mortgage rates. I’ve already received texts and emails from people asking, “So, how much have mortgage rates dropped today?” The reality is quite the opposite—mortgage rates actually went up after the Fed’s announcement. Yep, you heard that right.
But how does that work? Didn’t the Fed just cut rates?
Here’s the thing: the Federal Reserve controls short-term interest rates like those tied to credit cards, home equity lines of credit (HELOCs), and car loans. These are the loans with terms of a few months to a few years. Mortgage rates, on the other hand, are long-term rates, and they’re influenced by entirely different factors—mainly inflation and the bond market.
Why Did Mortgage Rates Go Up After the Fed Cut Rates?
This might feel counterintuitive, but mortgage rates can—and often do—move independently of what the Fed does with short-term rates. In fact, after the latest rate cut, mortgage rates increased slightly. So what gives?
The short answer: inflation and the bond market. Long-term mortgage rates are closely tied to inflation expectations. When inflation is high, lenders demand higher interest rates to compensate for the decrease in the value of money over time. But when inflation is under control, like we’re seeing now, mortgage rates tend to come down because the bond market feels more confident.
Over the last few years, inflation has been a huge issue, driven by post-pandemic spending and economic overheating. The Federal Reserve responded by raising interest rates to cool things off—what’s been referred to as a “higher for longer” strategy. That’s worked: inflation is down significantly, and mortgage rates have been following suit.
The Real Impact of Inflation on Mortgage Rates
Inflation is the key factor that influences long-term mortgage rates. After years of rapid price increases, inflation has finally slowed down, thanks to the Fed’s aggressive rate hikes. But here’s an important point: just because inflation is lower doesn’t mean prices are dropping. It just means they’re not rising as quickly as before. This is why your grocery bill might still feel painful—it’s just not increasing at the same crazy pace it was a year ago.
When inflation slows, the bond market takes notice. In the financial world, the bond market loves stability. Lower inflation signals to the bond market that the economy is cooling off, which brings long-term interest rates (like mortgage rates) down. This process doesn’t happen overnight, but we’ve been seeing it play out over the past few months.
What the Rate Cut Really Signals: A Slowing Economy
So, why did the Fed cut rates in the first place? Their decision signals that they’re shifting focus from fighting inflation to addressing concerns about economic slowdown and unemployment. Essentially, the Fed is worried that if they keep rates too high for too long, it might lead to an economic downturn—potentially even a recession.
With lower inflation, the Fed feels they’ve won that battle for now, but they’re keeping an eye on the bigger picture. This is great news for mortgage rates in the long run because a slowing economy typically results in lower mortgage rates as the bond market shifts focus from inflation to recession fears.
What Homebuyers Should Do Now
If you’re thinking about buying a home, here’s where things get interesting. Mortgage rates have been on a steady decline, and we’re heading into the holiday season—a time when real estate activity tends to cool down due to seasonal factors. Fewer buyers mean less competition, and combined with lower mortgage rates, this creates a unique opportunity for buyers.
Here’s how I see it: as rates remain low, your affordability improves, and you gain more negotiating power with sellers. While spring 2025 might feel far away, you can bet that once we hit the busy season, the market will start heating up again. With lower rates sticking around, there’s a good chance we’ll see multiple offers on homes and tighter inventory come next year. The longer rates stay down, the more the real estate market will warm up.
Translation: if you’re thinking about buying a home, now is the time to start planning. Get in before the market gets hot again, and you could find yourself with a great deal, both in terms of rates and pricing.
Why It’s Crucial to Work with Experienced Professionals
Lastly, I cannot stress this enough: hire real professionals. Whether it’s a Realtor or a Loan Officer, make sure you’re working with someone who knows what they’re doing. This is likely the biggest purchase of your life—don’t leave it in the hands of someone who dabbles in real estate on the side. Look for years of experience and a proven track record. If you need help finding the right team, feel free to reach out—I’m always here to help.
Final Thoughts: What to Expect in 2025
To sum it up: the Federal Reserve’s rate cut signals that inflation is under control, and the focus is shifting toward economic concerns. Mortgage rates have been dropping and will likely continue to do so, creating a window of opportunity for homebuyers. If you’ve been thinking about buying a home, the next few months could be your chance to lock in a low rate before the market picks up again next spring.
Remember, navigating this market is all about timing and having the right people on your side. If you have any questions or need advice on your specific situation—whether you’re buying a home or considering refinancing—reach out for a no-obligation conversation. I’m always happy to help.
Read the original blog post here.
